Retrotechtacular: FAX as a Service in 1984

2 years ago

If you tell someone these days to send you something via FAX, you are likely to get a look similar to the one you’d get if you asked them to park your horse. But in 1984, FAX was a mysterious new technology (well, actually, it wasn’t, but it wasn’t yet common to most people).

FedEx–the people who got famous delivering packages overnight–made a bold move to seize a new market: Zapmail (not to be confused with the modern mass mailing service). The idea was simple (you can see a commercial for it in grainy VHS splendor, below): Overnight is great but sometimes you need something sent across the country now. A FedEx driver picks up your documents, carries them to a FedEx office. There the documents FAX to another FedEx office where another driver delivers the printed copy. The process took two hours to get a paper document from one side of the continent to another.

That was how it worked for individuals and small businesses. If you were a big business, FedEx would install a NEC FAX machine on your premises. Remember, FAX machines were expensive and exotic in 1984. Fred Smith–the iconic CEO of FedEx–invested $100 million dollars to launch the endeavor.

Wharton Notwithstanding

You probably don’t need a Wharton MBA to realize what happened, or, at least, part of it. There were several problems. The service was fairly expensive ($35 for ten pages at the beginning). In addition, the FAX machines were not compatible with industry-standard machines and used a FedEx packet switched network instead of conventional phone lines. The machines were expensive and combined with the cost of the network connections drove FedEx’s costs. Using FedEx’s FAX machines wasn’t very private, either since some FedEx people could see them in transit. Sure, they could open an envelope with regular deliveries, but probably 99% of the documents are boring. You aren’t going to rip open a bunch of envelopes just for that rare interesting document, but if they are out in the open you might notice something that would be worth something to someone or otherwise be interesting.

However, all of this might have been workable except for one thing. Like most electronic devices, FAX machine prices took a nose dive. Big offices bought their own FAX machines that used regular phone lines. Even consumers could afford cheap machines with thermal printers.

Within two years, FedEx shut down ZapMail and took a large loss on the operation (about $350 million). We’ve heard the incompatible NEC FAX machines were sold to a scrap vendor for $1 million. Memory chip shortages in 1988 allowed the scrap vendor to make about $8 million in profit from the deal. They may have been the only beneficiary of the entire ZapMail experience.

If you want to read a first-hand account of how ZapMail came to be, the plans to use satellites to drive down costs (which never occurred, at least in part due to the STS-51L disaster), and the attempts to save it before finally shutting it down, you might enjoy this account from FedEx Legends. One interesting tidbit from that document: on the first day of service, they projected that the system would handle 1,000 documents. The actual number was 50. At the peak, they did handle up to 55,000 documents a day, but that was far short of the projected numbers.

Lesson Learned

Why care about some 30 year old failure? Oddly enough, there are plenty of modern parallels. Essentially FedEx wanted to replace an expensive machine with a (relatively) inexpensive service. Sound familiar? Everyone wants us to be in the cloud. Don’t buy hardware and software, just consume a service.

There are advantages to that in many cases, of course. But there’s a great lesson in this for anyone who wants to provide a service that replaces something people could just buy outright. It needs to be cheaper, faster, more convenient, or have better quality. Preferably, it needs to be several of these. A good analogy would be lawn care service. You can buy a lawnmower, or you can hire people to do it.

Zap mailed started out meeting some of these, but rapidly became expensive, slower (had to wait for a delivery), less convenient (only sends to FedEx offices), and didn’t maintain a significant lead on quality.

You could easily draw a parallel to, say, 3D printing as a service. To make that work you need to be cheaper (hard to do with $200 printers out there), faster (hard to do if you are shipping), more convenient, and higher quality. Convenience is in the eye of the beholder. Some people find it handy to have a printer on hand; some prefer to have a no-hassle experience of click and the part shows up in the mail. The big boon is quality. Successful service bureaus have high-end printers that can offer materials and print quality you just aren’t going to get out of a $200 printer. At least, for today.

Eventually, everyone who wanted FAX bought their own and put ZapMail out of business. E-mail and other factors eventually all but killed the FAX machine. It isn’t hard to imagine widespread availability of high-quality 3D printing gear that would all but kill the 3D printing service.

Those who don’t learn from history are doomed to repeat it. If you are thinking of offering a service to replace something people could buy, be sure you understand the lesson of ZapMail.